Public Blockchains and the Fidelity Problem

The “fidelity problem” was coined recently by developer Jeff Garzik where it defines an issue with Bitcoin’s blockchain. However, it is more broadly applicable to any public blockchain that proves unable or unwilling to scale bandwidth to a size that could satisfy the deployment of higher-level applications.

Bitcoin is more mature than Ethereum. It has been around longer. It’s scaling issues are well known and often lamented. Ethereum has proved itself dynamic and fast-paced to date, for better or for worse. Ethereum has a clear scalability roadmap over a defined period of time. Still, it could suffer from its own early success and get stuck on its scalability roadmap.

The term “fidelity problem” itself is in reference to a company in the blockchain ecosystem looking to develop these higher-level applications; Fidelity Investments.

What is the “Fidelty Problem?”

This is a problem at the higher-level application layer on a public blockchain. If a company develops an application for Bitcoin, or any public blockchain, they have the potential to instantly consume all of the block capacity. This problem is particularly pronounced in Bitcoin where the block size is very small.

The fidelity problem means that users never get to experiment with real applications on the network and assess the results, because the applications are never launched. Conversely, developers at a core level don’t want to increase block size until they see people launching applications, evidencing a real world need for an increase in capacity. As a result, necessary testing and experimentation is never really done.

The Ethereum scalability roadmap and Fidelity Problem

The fidelity problem would suggest that scalability concerns are of paramount importance. This problem is ongoing and is becoming more of a latent issue. The fidelity problem suggests that scalability is an issue if you see public blockchains as useful for more than just the tokens-as-value transfer. In the case of Ethereum, this is exactly what the network was designed for; higher-level decentralized applications. The tokens are only there to facilitate that.

So the ‘Fidelity Problem’ is something of which Ethereum should be acutely aware. In direct contrast to the ultra-conservative bitcoin scalability approach, Ethereum’s scalability road-map is extremely ambitious. It involves concepts on the very cutting edge of blockchain technology. The proposed solutions are not necessarily new, like sharding and parallelization, but they have not been testing in a production setting, on a billion dollar public blockchain.

Ultimately, if the vision is realized, fidelity will not be a problem for Ethereum. This is because there will be credit card level transaction capacity at the core protocol level, with a large set of nodes on consumer grade hardware.

What value does Bitcoin gain by having companies try to use it as a distributed database?
Doing the math on potential fees from millions of transactions, it doesn’t seem like much at all. On top of that, we know we’re not going to be able to handle billions in a short period any time soon, at least with public knowledge. Not to mention the congestion from billions of data storage transactions would be significant.

If the fees are raised to compensate, this acts as a detriment for the people who want to use Bitcoin as p2p money. Also, if the market rejects people using Bitcoin-as-a-database by raising fees high enough that it’s no longer economical to use it in that way, then they’re just back at square one. But, if the fees stay low, then it seems more like a tragedy of the commons scenario where organizations exploit the blockchain for data storage as opposed to p2p payments. Overall, Bitcoin needs to address scalability inherent in the fidelity problem if it wants to posture itself for future growth.